oversight

Results Act: Observations on CFTC's Strategic Plan

Published by the Government Accountability Office on 1997-10-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Risk Management and
                          Specialty Crops, Committee on Agriculture
                          House of Representatives


For Release on Delivery
Expected at
3:00 p.m., EDT
                          RESULTS ACT
on Wednesday
October 22, 1997

                          Observations on CFTC’s
                          Strategic Plan
                          Statement of Richard J. Hillman, Acting Associate Director
                          Financial Institutions and Markets Issues
                          General Government Division




GAO/T-GGD-98-17
Summary

Results Act: Observations on CFTC’s
Strategic Plan

                  Under the Government Performance and Results Act of 1993 (GPRA or
                  Results Act), executive agencies were to complete—not later than
                  September 30, 1997—strategic plans in which they define their missions,
                  establish results-oriented goals, and identify strategies they will use to
                  achieve those goals for the period of 1997 through 2002. The House
                  Subcommittee on Risk Management and Specialty Crops, House
                  Committee on Agriculture, asked GAO to assess the strategic plan of the
                  Commodity Futures Trading Commission (CFTC) for compliance with the
                  Results Act.

                  On the basis of its review, GAO found that CFTC’s strategic plan contained
                  all of the major components required by the Results Act. However, as
                  discussed below, GAO identified several areas in which CFTC could improve
                  its plan.

              •   The plan defines goals and objectives that supported CFTC’s mission, but
                  most of these could benefit by being restated in a way that would facilitate
                  future assessment.
              •   The plan identifies activities for achieving CFTC’s goals and objectives, but
                  it could be more informative by including the resources needed for the
                  activities, schedules for completing key actions, and ways for assigning
                  accountability to managers and staff.
              •   The plan’s discussion of the relationship between goals in the annual and
                  strategic plans could be strengthened by including more results-oriented
                  performance measures that could be used to reflect progress made toward
                  achieving its goals.
              •   The plan identifies some key external factors that could affect the agency’s
                  ability to achieve its goals, but the plan could be improved by describing
                  how such factors are linked to particular goals and how a particular goal
                  can be affected by a specific factor.
              •   The plan indicates that CFTC will use its existing processes to evaluate its
                  programs, but the plan could be expanded to include information on the
                  timing and scope of future evaluations.
              •   The draft plan was made available to stakeholders late in the process. As a
                  result, the plan reflects limited consultation with stakeholders during plan
                  development. Also, the plan does not discuss how CFTC will incorporate
                  stakeholders’ views in the development of future plans.

                  GAO recognizes that developing performance measures and measuring
                  program impacts present challenges to CFTC and other regulatory agencies
                  in addressing the requirements of the Results Act. However, it is important
                  that CFTC and other regulatory agencies continue their efforts toward that



                  Page 1                                                       GAO/T-GGD-98-17
Summary
Results Act: Observations on CFTC’s
Strategic Plan




end. Any new methods or research approaches developed by one agency
could also be useful to others.

GAO also recognizes that CFTC’s strategic plan is a dynamic document that
the agency intends to refine. Improving management in the federal sector
will not be easy, but the Results Act can assist in accomplishing this goal.




Page 2                                                        GAO/T-GGD-98-17
Statement

Results Act: Observations on CFTC’s
Strategic Plan

               Mr. Chairman and Members of the Subcommittee:

               I am pleased to be here today to assist the Subcommittee in its review of
               the Commodity Futures Trading Commission’s (CFTC) strategic plan.
               Hearings such as this one are an important part of assuring that the intent
               of the Government Performance and Results Act of 1993 (GPRA or Results
               Act) is met, and we commend you, Mr. Chairman, for holding this hearing.
               The consultative process provides an important opportunity for Congress
               and the executive branch to collectively ensure that agency missions are
               focused, goals are results-oriented, and strategies and funding
               expectations are appropriate. As you know, the Results Act required
               executive agencies to complete their initial strategic plans by
               September 30, 1997, and CFTC met this requirement.

               My testimony today discusses our review of CFTC’s strategic plan. We
               specifically determined whether the plan contained each of the six
               components required by the Results Act and assessed each component’s
               strengths and weaknesses. We also reviewed the extent to which CFTC
               consulted with stakeholders, including the other federal financial market
               regulators. Finally, we identified challenges that CFTC faces in addressing
               the requirements of the Results Act.

               CFTC’s strategic plan reflects a concerted effort by the agency to address
               the requirements of the Results Act. Although the plan could be
               strengthened in some areas, it compares favorably with the plans of other
               federal financial regulators that we have reviewed.1 On the basis of our
               review, we found that CFTC’s plan contained all of the components required
               by the Results Act but that some of the components could be
               strengthened. We also found that the plan could be improved by additional
               stakeholder input, including interagency coordination. Finally, due to the
               complex set of factors that determine regulatory outcomes, measuring
               program impacts presents challenges to CFTC in addressing the
               requirements of the Results Act, as it does for regulatory agencies in
               general. However, the use of program evaluations to derive
               results-oriented goals and to measure the extent those goals are achieved
               is one key to the success of the process. Notwithstanding the need for
               improvements, we recognize that CFTC’s strategic plan is a dynamic
               document that the agency intends to refine.




               1
                See The Results Act: Observations on Draft Strategic Plans of Five Financial Regulatory Agencies
               (GAO/T-GGD-97-164, July 29, 1997).



               Page 3                                                                           GAO/T-GGD-98-17
             Statement
             Results Act: Observations on CFTC’s
             Strategic Plan




             My comments apply to the strategic plan that CFTC formally submitted to
             Congress and the Office of Management and Budget (OMB) in
             September 1997. In general, our assessment of CFTC’s plan was based on
             knowledge of the agency’s operations and programs; past and ongoing
             reviews of CFTC; results of work on other agencies’ strategic plans and the
             Results Act; discussions with CFTC, OMB, and Subcommittee staff; and other
             information available at the time of our assessment. The criteria we used
             to determine whether CFTC’s plan complied with the requirements of the
             Results Act were the Results Act itself and OMB guidance on preparing
             strategic plans (OMB Circular A-11, Part 2). To assess CFTC’s consultation
             with stakeholders and to identify challenges in implementing the Results
             Act, we relied on the results of our previous work and/or discussions with
             CFTC and OMB officials.



             CFTC is an independent agency that administers the Commodity Exchange
Background   Act, as amended,2 and was created by Congress in 1974. The principal
             purposes of the act are to protect the public interest in the proper
             functioning of the market’s price discovery and risk-shifting functions. In
             administering the act, CFTC is responsible for fostering the economic utility
             of the futures market by encouraging its efficiency, monitoring its
             integrity, and protecting market participants from abusive trade practices
             and fraud.

             As its title indicates, the Results Act focuses on results. The Act seeks to
             shift the focus of federal management and decisionmaking from a
             preoccupation with the number of tasks completed or services provided to
             a more direct consideration of the results of programs—that is, the real
             differences those tasks or services make in citizens’ lives. In crafting the
             Act, Congress recognized that congressional and executive branch
             decisionmaking had been severely handicapped in many agencies by the
             absence of the basic underpinnings of well-managed organizations. These
             agencies lacked clear missions; results-oriented performance goals;
             well-conceived agency strategies to meet those goals; and accurate,
             reliable, and timely program performance and cost information to measure
             progress in achieving program results. In recent years, Congress has
             established a statutory framework for addressing these long-standing
             challenges and for helping it and the executive branch make the difficult




             2
              7 U.S.C. 1 et seq.



             Page 4                                                        GAO/T-GGD-98-17
Statement
Results Act: Observations on CFTC’s
Strategic Plan




trade-offs that are necessary for effective policymaking.3 Improving
management in the federal sector will not be easy, but the Results Act can
assist in accomplishing this task.

The Results Act requires executive agencies to prepare multiyear strategic
plans, annual performance plans, and annual performance reports. First,
the Act requires agencies to develop a strategic plan covering the period of
1997 through 2002. As indicated in the Results Act and OMB guidance, each
plan is to include six major components: (1) a comprehensive statement of
the agency’s mission, (2) the agency’s long-term goals and objectives for
all major functions and operations, (3) a description of the approaches (or
strategies) for achieving the goals and the various resources needed, (4) an
identification of key factors, external to the agency and beyond its control,
that could significantly affect its achievement of the strategic goals, (5) a
description of the relationship between the long-term strategic goals and
annual performance goals, and (6) a description of how program
evaluations were used to establish or revise strategic goals and a schedule
for future evaluations. In developing their strategic plans, agencies are to
consult with Congress and solicit the views of stakeholders.

Second, the Results Act requires executive agencies to develop annual
performance plans covering each program activity set forth in their
budgets. The first annual performance plans, covering fiscal year 1999, are
to be provided to Congress after the President’s budget is submitted to
Congress in early 1998. An annual performance plan is to contain the
agency’s annual goals, measures to gauge performance toward meeting its
goals, and resources needed to meet its goals.

And third, the Results Act requires executive agencies to prepare annual
reports on program performance for the previous fiscal year. The
performance reports are to be issued by March 31 each year, with the first
(for fiscal year 1999) to be issued by March 31, 2000. In each report, the
agency is to compare its performance against its goals, summarize the
findings of program evaluations completed during the year, and describe
the actions needed to address any unmet goals.




3
 This framework includes as its essential elements the Chief Financial Officers (CFO) Act; information
technology reform legislation, including the Paperwork Reduction Act of 1995 and the Clinger-Cohen
Act; and the Results Act. The CFO Act was expanded and amended by the Government Management
Reform Act.



Page 5                                                                            GAO/T-GGD-98-17
                        Statement
                        Results Act: Observations on CFTC’s
                        Strategic Plan




                        Based on our review, we found that CFTC’s strategic plan contains all of the
CFTC’s Strategic Plan   six major components required by the Results Act. The plan defines the
Contains All Six        agency’s mission, establishes goals, lists activities to be performed to
Required                achieve the goals, identifies key factors affecting the achievement of the
                        goals, discusses the relation between the goals of the strategic and annual
Components, but         performance plans, and addresses methods for evaluating the agency’s
Some Components         programs. However, we identified several areas in which CFTC could
                        improve the plan as it is revised and updated.
Could Be
Strengthened
Mission Statement       Consistent with the OMB guidance, the strategic plan contains a brief
                        mission statement that broadly defines CFTC’s basic purposes: to protect
                        market users and the public from abusive practices and to foster open,
                        competitive, and financially sound futures and option markets. In addition,
                        the accompanying background of the mission statement defines the
                        agency’s core responsibilities and discusses the agency’s enabling
                        legislation.


General Goals and       Consistent with the OMB guidance, the strategic plan describes CFTC’s goals
Objectives              and general objectives, providing staff with direction for fulfilling the
                        agency’s mission. The agency’s three goals are to (1) protect the economic
                        functions of the commodity futures and options markets, (2) protect
                        market users and the public, and (3) foster open, competitive, and
                        financially sound markets. The plan further defines each goal in terms of a
                        number of outcome objectives. For example, under goal two, the plan
                        includes the outcome objectives of promoting compliance with and
                        deterring violations of federal commodities laws as well as requiring
                        commodities professionals to meet high standards.

                        The OMB guidance notes that a strategic plan’s general goals and objectives
                        should be stated in a manner that allows for future assessment of whether
                        the goals and objectives are being achieved. Although the general goals
                        and outcome objectives support the agency’s mission, most could benefit
                        by being restated in a way that facilitates future assessment of whether
                        they have been achieved. Examples of objectives that could be restated
                        include overseeing markets used for price discovery and risk shifting as
                        well as promoting markets free of trade practice abuse.




                        Page 6                                                       GAO/T-GGD-98-17
                            Statement
                            Results Act: Observations on CFTC’s
                            Strategic Plan




Description of How the      Consistent with the OMB guidance, the strategic plan lists key activities that
General Goals and           staff are to perform to accomplish the outcome objectives and, in turn,
Objectives Will Be          general goals. For example, an outcome objective of goal three is to
                            facilitate the continued development of an effective, flexible regulatory
Achieved                    environment. The specific activities to be performed for this objective
                            include providing regulatory relief, as appropriate, to foster the
                            development of innovative transactions and participating in the
                            President’s Working Group on Financial Markets4 to coordinate efforts
                            among U.S. financial regulators.

                            The plan also discusses actions for communicating accountability to CFTC
                            managers and staff. These actions include instituting a performance
                            management system to create a more effective communication tool for
                            mangers and staff and using the annual performance plan to better
                            communicate specific goals and performance levels to staff.

                            The OMB guidance notes that a strategic plan should briefly describe the
                            resources needed to achieve its goals and objectives, for example, in terms
                            of operational processes, staff skills, and technologies, as well as human,
                            capital, and other resources. The guidance further notes that a plan should
                            include schedules for initiating and completing significant actions as well
                            as outline the process for communicating goals and objectives throughout
                            the agency and for assigning accountability to managers and staff for
                            achieving objectives.

                            Although CFTC’s plan lists specific activities to be performed to achieve its
                            goals and objectives, it could be made more informative by discussing the
                            resources needed to perform the activities and by providing schedules for
                            initiating and completing significant actions. Similarly, the plan’s
                            discussion of communicating accountability could be expanded to address
                            how CFTC will assign accountability to managers and staff for achieving
                            objectives.


Relationship Between        Consistent with the OMB guidance, the strategic plan discusses the annual
Goals in the Annual         plan activities in relationship to each of the strategic plan’s goals. Many of
Performance and Strategic   the identified annual plan activities reflect CFTC’s ongoing regulatory
                            responsibility to protect market participants and oversee the markets. The
Plans                       strategic plan also includes a discussion on measuring the activities to be

                            4
                             The President’s Working Group on Financial Markets was created following the October 1987 stock
                            market crash to address issues concerning the competitiveness, integrity, and efficiency of the
                            financial markets. The Secretary of the Treasury chairs the group, and other members include the
                            chairs of CFTC, the Federal Reserve System, and the Securities and Exchange Commission.



                            Page 7                                                                         GAO/T-GGD-98-17
                           Statement
                           Results Act: Observations on CFTC’s
                           Strategic Plan




                           performed to accomplish each goal. Finally, the strategic plan mentions
                           that the annual plan establishes indicators and targets with the goal of
                           ensuring that day-to-day activities are appropriately defined and measured.

                           According to the OMB guidance, a strategic plan should briefly outline the
                           type, nature, and scope of the annual performance goals and the relevance
                           and use of these goals in helping determine whether the strategic plan’s
                           goals and objectives are being achieved. The linkage between the two
                           plans is important because a strategic plan’s goals and objectives establish
                           the framework for developing the annual performance plan. Moreover,
                           annual performance goals indicate the planned progress in that particular
                           year toward achieving the strategic plan’s goals and objectives.

                           While CFTC’s strategic plan discusses performance measures, it does not
                           include performance goals that could be used to indicate the planned
                           progress made each year toward achieving the general goals and
                           objectives. Moreover, its measures focus on activities that are generally
                           not stated in a manner that allows for future assessments and that may not
                           always measure the intended outcomes. Examples of such measures
                           include “potential violators deterred,” “informed market users,” and “high
                           level of compliance fostered.” CFTC could strengthen its plan by discussing
                           performance goals and developing more results-oriented performance
                           measures against which actual performance can be compared. As
                           discussed below, regulatory agencies, such as CFTC, face barriers in
                           developing such measures.


Key External Factors       Consistent with the OMB guidance, the strategic plan discusses some
Affecting Achievement of   external challenges that could alter CFTC’s ability to meet its goals and
General Goals and          objectives, and it also discusses the strategies for meeting such challenges.
                           The external challenges include the growing use of over-the-counter
Objectives                 derivatives; structural changes in the financial services industry, including
                           the convergence of the securities, futures, insurance, and banking
                           industries; and globalization of financial markets. Strategies to address
                           such challenges include fostering strong relationships with foreign
                           authorities and responding to structural changes to ensure a level playing
                           field as the futures, insurance, securities, and banking industries become
                           more integrated.

                           The plan also discusses four internal, or management, challenges that
                           could alter CFTC’s ability to meet its goals and objectives, and it discusses
                           strategies for meeting such challenges. Internal challenges include



                           Page 8                                                         GAO/T-GGD-98-17
                          Statement
                          Results Act: Observations on CFTC’s
                          Strategic Plan




                          diminishing resources, recruiting and retaining qualified staff, and
                          remaining abreast of technology. Strategies to address such challenges
                          include reviewing resource requirements for operations and programs to
                          ensure sound fiscal management, setting standards for staff recruitment,
                          and implementing the agency’s data processing plan.

                          According to OMB guidance, a strategic plan should not only discuss key
                          external factors but also indicate their link to particular goals and describe
                          how the factors could affect the achievement of the goals. While the plan
                          discusses external factors and strategies for addressing them, the link
                          between particular factors and goals is not clear. CFTC could strengthen its
                          plan by describing how the external factors are linked with particular
                          goals and how a particular goal could be affected by the external factors.
                          Also, the plan might benefit from a discussion of external factors that
                          represent significant challenges for the financial industry, such as those
                          relating to the “year 2000” computer dating problem5 and those relating to
                          proposals for revising the Commodity Exchange Act that could affect
                          CFTC’s jurisdiction and that of other federal financial market regulators.6



Program Evaluations and   The strategic plan specifies that CFTC will use methods and processes that
Strategic Plans           are already in place to evaluate how well it is implementing its strategic
                          and annual performance plans for the first 3 years. According to the plan,
                          these processes are to provide information on, among other things,
                          program accomplishments, staff activities, and CFTC’s financial condition
                          and resource usage. However, the plan also explains that the reporting
                          process related to program accomplishments will be evaluated to
                          determine how it may be used for reporting on program progress toward
                          meeting the goals, outcome objectives, and activities in the strategic plan
                          as well for setting overall priorities and allocating resources consistent
                          with those priorities. Similarly, reviews and evaluations are described for
                          the systems related to staff activities and resource usage. As such, we note
                          that CFTC’s evaluations are to be of its existing measurement and
                          monitoring systems and that CFTC does not appear to be planning any
                          evaluations of the manner and extent to which its programs achieve their
                          objectives.




                          5
                           The year 2000 computer dating problem relates to the need for computer systems to be changed to
                          accommodate dates beyond the year 1999.
                          6
                           See The Commodity Exchange Act: Legal and Regulatory Issues Remain (GAO-GGD-97-50, April 7,
                          1997).



                          Page 9                                                                          GAO/T-GGD-98-17
                        Statement
                        Results Act: Observations on CFTC’s
                        Strategic Plan




                        The OMB guidance notes that a strategic plan should briefly describe
                        program evaluations used to prepare the plan and provide a schedule for
                        future evaluations outlining the methodology, scope, and issues to be
                        addressed. CFTC’s plan does not mention whether any evaluations were
                        used to prepare the plan; however, CFTC officials told us that no
                        evaluations were used. As CFTC revises and updates its plan, the plan could
                        be made more useful by including the results of program evaluations used
                        to prepare the plan. It could also be made more informative by discussing
                        the timing and scope of future program evaluations as well as the
                        particular issues to be addressed.


                        In developing their strategic plans, agencies are to consult with Congress
CFTC’s Strategic Plan   and solicit the views of stakeholders—those potentially affected by or
Reflects Limited        interested in the plan. Agencies have discretion in determining how this
Consultation            consultation is conducted. The OMB guidance notes that some general
                        goals and objectives will relate to cross-agency functions, programs, or
                        activities. In such cases, it instructs agencies to ensure that appropriate
                        and timely consultation occurs with other agencies during the
                        development of strategic plans with cross-cutting goals and objectives.

                        CFTC’s strategic plan identifies numerous stakeholders, stating that they
                        are valuable resources that must be tapped to provide critical feedback on
                        the agency’s goals and priorities. The stakeholders identified in the plan
                        include futures exchanges, the National Futures Association, market
                        users, and other federal departments and agencies. The plan also discusses
                        CFTC’s working relationships with other organizations and jurisdictions.
                        For example, it notes that CFTC staff work through various
                        intergovernmental partnerships to consult on issues of importance to CFTC
                        and other federal financial regulators, including federal securities and
                        bank regulators.

                        The draft plan was made available to stakeholders late in the process. As a
                        result, the plan reflects limited consultation with stakeholders during plan
                        development. Also, the plan does not discuss how CFTC will incorporate
                        stakeholders’ views in the development of future plans. CFTC published its
                        draft strategic plan in the Federal Register on September 16, 1997, to
                        solicit comments.7 The comment period ended on October 16, 1997. In
                        addition, CFTC made the draft plan available on its internet home page and
                        provided copies of the draft plan to present and former members of its
                        advisory committees. Furthermore, every former CFTC commissioner and

                        7
                         62 Fed. Reg. 48613.



                        Page 10                                                      GAO/T-GGD-98-17
                   Statement
                   Results Act: Observations on CFTC’s
                   Strategic Plan




                   chairperson was contacted and asked to provide feedback on the draft
                   plan, and CFTC officials told us that the draft plan had been provided to the
                   other federal financial market regulators for comment. Nonetheless, CFTC
                   officials told us that there were only two parties outside of Congress, OMB,
                   and at your request, the GAO that had provided the agency feedback on the
                   plan, as of October 16, 1997.

                   CFTC officials told us that they plan to use the same approach in developing
                   future plans as they did in developing the current plan. CFTC’s lack of
                   success with this approach suggests that the agency should consider
                   alternative approaches.


                   In enacting the Results Act, Congress realized that the transition to
CFTC Faces         results-oriented management would not be easy. Moving to a results
Challenges in      orientation could be especially difficult for CFTC and other regulatory
Implementing the   agencies. We analyzed a set of barriers facing certain regulatory agencies
                   in their efforts to implement the Results Act in a June 1997 report.8 These
Results Act        barriers included the following: (1) problems collecting performance data,
                   (2) complexity of interactions and lack of federal control over outcomes,
                   and (3) results realized only over long time frames. To some extent, each
                   of these barriers is applicable to CFTC.

                   As implementation of the Results Act proceeds, CFTC, like other regulatory
                   agencies, is likely to continue encountering barriers to establishing
                   results-oriented goals and measures and, as a result, in evaluating program
                   impact. Although developing performance measures and evaluating
                   program impact are difficult, it is important that CFTC and other regulatory
                   agencies continue their effort toward that end. Any new methods or
                   research approaches developed by one agency could also be useful to
                   others.


                   In summary, it is important to recognize that while CFTC’s strategic plan
                   can be further improved, the Results Act anticipated that the process of
                   developing an effective strategic plan could take several planning cycles.
                   Nonetheless, we are pleased that CFTC’s strategic plan reflects
                   improvements based on the suggestions that we made during informal
                   meetings with agency officials as well as suggestions that the agency
                   received from congressional committees and OMB. We look forward to

                   8
                    Managing for Results: Regulatory Agencies Identified Significant Barriers to Focusing on Results
                   (GAO/GGD-97-83, June 14, 1997).



                   Page 11                                                                           GAO/T-GGD-98-17
           Statement
           Results Act: Observations on CFTC’s
           Strategic Plan




           continuing to work with the Congress and CFTC to ensure that the
           requirements of the Results Act are met.

           Mr. Chairman, this concludes my prepared statement. I will be pleased to
           respond to any questions that you or Members of the Subcommittee may
           have.




(233544)   Page 12                                                    GAO/T-GGD-98-17
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